The marketplace: a complex, new business model with enticing possibilities

Marketplaces definitely have the wind in their sails. Guaranteed to speed the shift from brick-and-mortar to digital, they offer new hope to merchants, who just might take the plunge and create their own platform or join an existing one. 

Driven by growth from new revenue sources, marketplaces are adopting an attractive platform strategy that relies on a broader ecosystem of partnerships, which, with a solid foundation based on robust technological and operational architecture, should add to the success of platforms. 

Do you agree with this assessment? 

Online retailers have always had a fairly linear sales relationship with their customers. The marketplace business model involves more partners because, as the ecommerce sector continues to demand more agility and innovation, platforms not only need to perfectly comply with regulations but also must become more flexible, relying on APIs that allow for better control and easier deployment across borders. APIs must engage thousands of new value-creating sellers who add to supply and stimulate growth. 

Providing customers and third-party sellers with the right tools for a maximised experience is no mean feat. Marketplaces require features that can handle the complexity of serving multiple sellers while providing consistency and satisfaction to users. Designing a unified shopping experience with an initial focus on the online buying journey, payment and execution of the order, care of delivery, and management of returns and refunds are essential for a marketplace project to succeed. These elements must be underpinned by consistent and transparent rules for sellers. 

Clearly, the needs of both buyers and sellers are as fundamental as the aspects of technology and processes. Moreover, the payment system is an essential component, whose importance and complexity should not be underestimated – this includes distributing payments and other fees to sellers and partners for a single shopping basket. 

What method of distribution do you recommend to the various stakeholders? 

There are three options available for a marketplace. The first, and least desirable, is for the marketplace singlehandedly to assume the task of payment distribution – to collect and redistribute payments. Apart from taking a significant risk, the marketplace might not comply with certain local regulations and be barred from operating in Europe. 

A second option would be for the marketplace to use a solution for collecting payment that would be transferred to a service provider's account. This means collecting on behalf of a third party. To comply with European legislation, this option is not advisable from a technical standpoint. Implementing it can be fairly complicated in the case of a mixed shopping basket – when there are more than two sellers involved in a single order. Actually, if a buyer wants to obtain several products from different sellers, they must perform multiple transactions, resulting in a shopping experience that is neither convenient nor enjoyable. 

There is a third option, however, which we do recommend. This involves using a service provider who can fully manage the transaction, accept it, and then distribute the funds to the various sellers. In this way, the marketplace can focus on its core business and specify the work order, and its provider takes care of the financial side. As such, the provider inherits the risk and all the complexities such as collection and redistribution of funds on mixed baskets, management of refunds and loyalty programmes, and so on. 

The marketplace then winds up being a one-stop shop. How do you feel about that? 

The idea of buying everything through the same interface already requires perfect catalogue management, including permanently updating the availability of products in stock. As we have already seen, the problem arises when several sellers are involved. If the marketplace does not follow the rules of the trade, the buyer may have to perform several transactions and therefore make multiple payments. However, the buyer will be charged all at once though they did not receive the products ordered at the same time because not all the products are available simultaneously. 

A proficient payment service provider (PSP) will allow the buyer to make a single cash transaction even when there are multiple sellers and the marketplace is also including its own products (as is the case with Amazon, for instance). The PSP is responsible for distributing the money at the time of payment authorisation. But to do so the PSP must be able to manage multiple charges and finalise them according to the availability of each product. In this way, the marketplace ensures customer satisfaction by charging only if (and not before) the product is available and dispatched. The complex orchestration behind all this must be totally invisible, causing no inconvenience to the marketplace, the buyer, or the sellers. 

A huge upsurge in cross-border trade is increasing the risks involved in foreign exchange. How do you manage multiple currencies and control risk when you are a platform? 

First of all, the marketplace must make sure that its payment provider is able to accept multiple currencies and that the purchaser can pay in different currencies. This means that the seller must display the catalogue price in the relevant currency whilst the marketplace must show the currencies with the exchange rates. The ultimate question is who will pay the exchange rate. The answer is often simple: it would be the buyer because neither the marketplace nor the seller can run the risk of currency depreciation and its effect on their product. 

One common solution is to have the funds dispatched through a specialised provider to pay the sellers quickly (in less than 24 hours), thereby avoiding any significant fluctuation in the exchange rate. The provider manages the risk. There still remains the unsettled question for the marketplace of exactly when the seller will be paid. 

New payment habits, fraud, the seamless customer experience – what is your point of view on all of this? 

The payment experience is more critical than ever. It is an integral part of the buying process and must meet the needs of consumers who are becoming ever more finicky about where to shop, based on how they can pay. The COVID-19 pandemic and lockdown have obviously had a major effect. 

In both B2C and B2B, consumers and businesses are now demanding a greater variety of payment methods. Adopting new payment methods and systems is not easy, especially with the increased risk of fraud. 

Merchants need, on the one hand, to continuously improve the customer experience while having to maximise their operational efficiency and profitability. When it comes to collection, the risk of fraud – always present when accepting payments – puts pressure on merchants who cannot reach satisfactory objectives on their own. They need specialised partners to help achieve a balance between effective fraud management and the guarantee of a smooth customer experience. 

Although some aspects of ecommerce payment processing are ensured by mature technologies, suppliers offer many different solutions. Merchants must consider the diversity of payment methods available, the overall or partial coverage of the payment value chain, related services (including fraud management), geographical coverage, and so on. They shouldn't rule out using several payment providers to spread the risk. 

Beyond managing technology, marketplaces must clearly deal with a host of complex factors on a daily basis: strategy, innovation, governance, metric management, customer experience, logistics channels, and partner management. All of this will have a crucial impact on their success. 

About Mathias Michelangeli 

Mathias Michelangeli joined Limonetik three years ago to open up and develop the new payment terminal market. With his expertise in acquisition and market development, Mathias has applied his talents as an independent consultant; as Sales Director at Linkfluence; Business Development Manager at Teemeo; and partner at Streamcairn. A graduate of the National Conservatory of Arts and Crafts (Arts et Métiers) in Paris, he also holds a French Degree (DTA) in Sales of Products and Services. 

About Limonetik 

Limonetik is a full-service payment aggregator that offers, via a unique API connection, acceptance of more than 180 international payment methods and advanced services – from collection and settlement management to reconciliation and account management – to enable new payment experiences (marketplaces, omnichannel model).